SINGAPORE (July 26): NRA Capital is maintaining its forecasts, valuation and “overweight” rating on Catalist-listed CNMC Goldmine Holdings at a fair value estimate of 38 cents – even as the group this morning issued a profit guidance to indicate that it expects 2Q17 profit to be “significantly lower” than the year before.

In a Wednesday report, analyst Liu Jinshu says he expects CNMC to breakeven in 2017 according to the research house’s base-case scenario, with 3Q performance depending on factors such as the USD/MYR rate and gold prices, whereas 4Q profitability will be driven by how fast the group can commission its upcoming carbon-in-leach (CIL) plant.

Highlighting that no mention of any loss was made in the group’s filing this morning, Liu believes that the lower y-o-y profitability has likely been priced in, and that the profit guidance is not a cause for NRA to revise its positive outlook on the counter.

“Our model values the Sokor mine’s existing resources at $0.380 and have yet to factor in exploration upside from all three mines – Sokor, Pulai and KelGold,” shares Liu.

“Profitability in 1Q17 was driven in part by close to US$0.3m of foreign exchange gains as the Ringgit appreciated by 1.4% against the US Dollar. During 2Q17, the ringgit appreciated by 3.0%. Hence, we can reasonably expect CNMC to report improved profitability in 2Q17 when compared to 1Q17,” he explains.

“Excluding foreign exchange gains, we can also expect operating performance to improve due to the larger number of working days in 2Q17. The first quarter of each year is partly affected by seasonal factors, such as holidays.”

In the longer term, the analyst continues to see three sets of growth drivers, namely: the commencement of production at the CIL plant; base metal extraction; and the development of its Pulai and Kelgold mines.

“We reiterate that CNMC has net cash of US$24.2m as of end 1Q17, translating to around 30% of its market capitalisation. Hence, we can expect CNMC to continue to pay dividends for 2017. We also highlight that gold prices have continued to range around US$1,250/oz. in 2Q17, which is also our average selling price assumption for FY17,” adds Liu.

As at 12.45pm, shares of CNMC are trading 8.5% lower at 27 cents.

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